Kosovo plans significant infrastructure spending in 2013

The IMF said Kosovo’s macro-economic and financial policies are broadly on track.

By Linda Karadaku for Southeast European Times in Pristina -- 06/11/12

Workers build a section of highway last year in Vermice. Highway projects are a high priority in Kosovo's 2013 budget. [AFP]

Kosovo's government will spend more than 40 percent of its 1.58 billion euro budget for 2013 on capital improvement projects, a figure that drew criticism from some economic analysts. Meanwhile, as the country manages the influence of the eurozone crisis, the IMF praised Kosovo's macro-economic and financial policies.

The government's priorities in the 2013 budget, which was approved on October 29th, remain education, road infrastructure, security, health care and agriculture. The completion of the Merdare-Morine Highway and the beginning of a new Pristina-Skopje Highway are among the top infrastructure projects.

Agron Demi of the Kosovo GAP Institute said the lion's share of the budget, 43 percent, will go toward capital investments.

"Three hundred million out of 620 million euros of capital investments will go only for two road projects, Pristina-Merdare Highway and Pristina-Hani I Elezit [Kosovo-Macedonia Highway]," Demi told SETimes, arguing that such spending "has not shown a direct connection between the increase of the capital investments and the increase of economic development."

Nezir Sinani, executive director of the Institute for Development Policy, told SETimes the budget has a great focus on roads, "but I think that the government should focus on the main drive of the Kosovo economy, agriculture."

Sinani said education, healthcare and renewable energy should also be priorities.

"[Renewable energy] would create new development possibilities in the country," Sinani added.

The ministry of infrastructure's 2013 budget is nearly 811 million euros. The ministry of agriculture, forestry and rural development is budgeted 44.6 million euros. Research in wind, geothermal and biomass energy is budgeted a combined 350,000 euros.

"The investments of the government in these two highways as well as those in the other regional roads are contributing to the modernization of the roads infrastructure of the country, as an important element to create the preconditions for the development of the private sector," Minister of Finance Bedri Hamza said.

The 2013 budget includes a 163 million euro revenue shortfall, which Hamza said will be covered by a surplus from the 2012 budget, according to a report by public broadcaster RTK. Kosovo also expects to receive 41 million euros from the IMF in December, the latest installment of a 107 million euro loan agreed to in March.

Kosovo Prime Minister Hashim Thaci told his cabinet that the budget is "entirely harmonised with the IMF," and would "enable the continuation of financing many projects which have a special importance for our economy."

Hamza said the budget took the eurozone crisis into account, with special attention paid to assistance for emergency liquidation of the banking sector and the budget reserve. He added that Kosovo expects economic growth of 4.5 percent in 2013 based on the increase of consumption, investments and exports.

The IMF supported the government's optimism, but estimated "the real growth would exceed 3 percent in both 2012 and 2013, which is higher than in most neighbouring countries."

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The IMF also said Kosovo's macro-economic and financial policies are broadly on track.

"All end-August quantitative performance criteria were met, as a modest shortfall in revenue collection was compensated by restraint on spending. Moreover, total budget receipts [composed of revenue and financing] exceeded projections," the IMF said.

But the fund warned of a possible deterioration in labour market conditions in the diaspora's host countries. Kosovo diaspora remains an important source of revenues for Kosovo's economy, contributing about 600 million euros a year.

"In this challenging environment, disciplined fiscal management, achieving an adequate level of government bank balances, the strengthening of the legal and regulatory framework for Kosovo’s financial system, prudent financial supervision by a strong and independent central bank and structural reforms to boost competitiveness remain critical to support macro-economic stability and growth," the IMF said.

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